toxicity. It is the absolute lowest insome markets.”So why hasn’t activity on litvenues and exchanges like Aquisalready grown significantly? Whatis prohibiting participants fromopting to use such venues ahead ofMiFID II? Analyst at Liberum, Jus-tin Bates, explains the complexitiesof the regulation itself alongsidefear and an element of waiting tosee what others will do, have allplayed a part in this.

“I can understand how some market participants anticipated a shift
towards lit venues ahead of MiFID
II and we were all expecting firms
to be ready for the new world and
have their respective houses in
order. The reality is we are dealing
with large clients with complex
systems, which take time to adjust.
There is a fear and questioning of
the first mover advantage, and market participants are waiting to see
what others are doing,” Bates says.

Horan adds there is a technolog-ical element to the lack of move-ment towards disruptive trading venues like Aquis.

Algorithms have a lot of back data on other venues
strategically used to determine where to send orders.

As Aquis Exchange is still relatively young, algorithms
simply do not have much data on the venue and so will
opt for a more familiar venue.

Publicly Scrutinised

Haynes predicts the shift will be last minute, reflectingthe ‘classic nervousness’ of the industry where nobodyis willing to make the first move, but somebody hasto show the way. As McLoughlin already highlighted,Haynes says, “The spotlight will be on data, if the datais available to analyse then firms will look at it andliquidity should then go to venues that are providingthe service to the benefit of the end client.”Market participants have predicted the turning pointwill be June 2018 when we see the first RTS 27 publi-cation under MiFID II. All venues will be scrutinisedpublicly and in terms of price reversion, likelihoodof execution, costs, pricing. “We will see exactly howgood each venue is and when firms draw up these re-ports it will be very difficult to ignore a venue that hasa small market share but looks great,” Horan adds. “Ifyou’re not going to a venue that is performing well andthe regulator asks why, it’s a very tricky conversationto have when that data is public. This kind of transpar-ency, even though it’s painful for many firms, will helpvenues and certainly any worthy underdogs.”There’s no doubt 2018 will be a year of adjusting forasset managers, exchange operators and broker-deal-ers alike, but the best execution reports as requiredby RTS 27 very well could be the moment the winnersare separated from the losers, or even the underdogs.It’s hard to ignore the amount of market participantswho have pointed to disruptors like Aquis Exchangeas being ones to watch in 2018. Bates summarises thepoint rather succinctly: “Aquis Exchange is a venuethat simply cannot be ignored in terms of pricing.When it comes to order flow. We will see migration offlow out of dark pools into lit venues, which is exactlywhat Aquis is.

“It should be a beneficiary of this, but there are twoother major factors around that attraction other thanthe migration from dark pools. It presents a compel-ling case in terms of offering best bid and offer pricingand liquidity, and perhaps most importantly the actualcost of execution is so much lower than any othervenue.”Indeed, it will be hard to argue against that.

If you’re not going to a venue
that is performing well and the
regulator asks why, it’s a very tricky
conversation to have when that
data is public.